An ‘Unreal Situation’ In Florida
A trio of housing bubble reports from Florida. “Realtor Art Broslat is concerned that there are still thousands of empty platted lots in both North Port and Port Charlotte, all owned by different people with different ideas and timetables.”
“‘The thing that concerns me is that..land prices are going up, but lot prices have dropped like a rock. That will encourage a different in-migration from the $400,000 opera-goers. In North Port, there are zones that are relatively concentrated (with homes). Then there are zones where you can drive a long way down a street and there are no houses.’”
“North Port City Commissioner Dick Lockhart said, ‘There’s hundreds of General Development houses for sale. (North Port’s) still a bedroom community, but it’s geared to catch up. Lowe’s is coming in, and of course we have Home Depot and Wal-Mart.’”
The Sun Sentinel. “The number of foreclosures is ballooning as strapped homeowners can no longer make their mortgage payments or quickly unload properties in a cooling housing market. The pace of foreclosures in South Florida seems to be accelerating. Almost a third of Florida’s 29,636 foreclosures were in South Florida in the first quarter of 2006.”
“Lawyers, financial counselors and government agencies report an explosion in such complaints as more homeowners find themselves unable to keep up with their payments.”
“‘We’ve been warning people that this is coming,’ said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington. He said more than half the loans on the books today are less than three years old, and the peak delinquency period for loans is when they are three to five years old.”
The Daytona Beach News Journal. “The condo buying frenzy of the past three years is now mostly over, developers and sales agents agree. Since January, Realtors have brokered 505 condo sales in Volusia and Flagler counties, just half the 1,010 deals they tallied in the same period of 2005.”
“According to the Florida Association of Realtors, prices stayed strong in the first quarter, with condos typically selling for about $20,000 more than the levels of a year earlier. But in April and May, the pattern reversed, with median prices falling about $40,000 below the monthly results of a year ago.”
“In some cases, short-term investors are lowering prices, worried about facing rising mortgage costs if they can’t flip properties quickly. ‘There’s been a softening of the market because investor demand has fallen off,’ said Sheriff Guindi.”
“The slowdown is occurring as developers put a growing volume of new units on the market. During 2004, more than 1,100 condominiums were added to Volusia County’s housing stock, and in 2005, nearly 2,000 more were completed. More than two dozen projects are under construction in both Volusia and Flagler counties. When finished, they’ll add another 2,800 units to the pipeline.”
“Work has halted on the Island Town Center, a 202-unit condo project slated for New Smyrna Beach’s North Causeway, and deposits were returned last month to 71 early buyers. WCI Communities, a Bonita Springs developer building hundreds of condominiums in Palm Coast’s Hammock Dunes area, told shareholders last month that orders for its condos up and down the East Coast have plunged 84 percent from last year’s level.”
“However, WCI is nearing completion of its 64-unit Tuscany project, is near the halfway mark on its 57-unit Casa Bella carriage-house project, and plans a groundbreaking later this year on its 64-unit Arezzo project.”
“Bill Roe agreed that investor demand has dropped sharply. ‘The difference between today and last year is that a lot of the investors are gone,’ Roe said. ‘The opportunity to make a fast buck isn’t there anymore so they’ve left the market. But that isn’t necessarily a bad thing. They were creating an unreal situation.’”
“… land prices are going up, but lot prices have dropped like a rock.”
Sounds a bit topsy-turvy! Does this bode well or ill for the call options that home builders use to insure themselves against hyperinflating land prices (and which will prove to be worthless if land prices drop like a rock)?
contradictory statement- = dooooooooooooooh
These kinds of mixed signals are to be expected. It is a symptom of froth and inflection points as I’ve said many times. Raw land responds to longer term forces by long term investors while lots are retail product and sensitive to short term economic forces. Yes, everything is melting dow(n) just not everything is is going to be in lockstep. There’s also going to be “head fakes” and outright misreporting like some stocks and the most recent “seasonaly adjusted” “increase” in new housing starts.
“‘We’ve been warning people that this is coming,’ said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington. He said more than half the loans on the books today are less than three years old, and the peak delinquency period for loans is when they are three to five years old.”
His warning that falling prices are on the way was even more blatant, though nonverbal: It has been quite a while now since Duncan sold his home to join the growing mass of “priced-out renters.”
Actions speak louder than words.
In addition , the peak delinquency period for a flipper caught in a slowdown would be 6 to 12 months ,rather than the typical 3 to 5 years for a owner occupied dwelling .
Last night on FLIP THAT HOUSE they had a young flipper on that purchase a 567K fixer upper in L.A. It was painful to watch . He had no money what-so-ever and he kept being turned down on additional fix up loan requests . The young flipper was the manager of a coffee/pastry house .. Now what lender would lend a young person this kind of money on a extreme fixer upper property with no reserves and a job like he had ? This kid didn’t even have the money for the first mortgage payments ,(which were $4,800.00 per month) .
The young flipper ended up borrowing money from his parents ,(30K ). The father flew out from back east and helped his young son for a week ,(thank God the father came because the roof would not of been done right ).
Anyway ,than the flipper ended up listing the property to high , the property set on the market and he ended up selling for 680k.(which was about 70K below his list price) .
Apparently the young flipper put all those hours in fixing up the house ,got alot of lates on his credit rating as a result ,and ended up breaking even after he paid his parents backs . I consider this young man one of the lucky ones .
Apparently this young man had made a quick 100k on a prior flip without doing anything ,so this is why he took on the challenge of the fixer upper with no money for repairs .The Lender gave him the money for the house but no lender would give him any money for the repairs of the house .
This is what has made this RE thing so irresistable, people all over have made alot of money almost by accident. They think it can go on forever which if you think about it for more than 30 seconds of course can not. Money in general is hard to get and very easy to spend.
Here is the big thing though,even though WE all see the bubble unraveling before our eyes, there are still many people who think the market is still going to go up for years to come. I listened to a few RE radio shows yesterday and the hosts (all RE people) are still telling every body that will listen that RE is the place to make money-Something’s gotta give! I think it will be RE prices.
You are right that the game became way too easy.It has been like the hot tech stock in the late 90’s. Just throw your money at anyhting and you will make money. It has attracted so many cluess wannabe investors who will take the market down in a real tailspin. Isn’t this the way it usually works out?
The only problem with that is that, is that the high-tech bubble was 10 times smaller than the real estate bubble. Think about that. Look at the damage the NASDAQ crooks did and multiply it by a magnitude of 10!
The real estate bubble implosion will be like the big one (earth quake) that is expected in California and San Francisco. It will be like the NASDAQ crash repeated 10 times over.
show was 6 ? months old
all HIVtv are old shows now= total BS
keep in mind this flip was done in a backdrop of 20-25% appreciation. he got out alive because his boat was in a rising market. i would bet that if he pulled the same stunt this week, he would have lost at least $100k. knucklehead.
I saw that episode. he was not prepared at all. he should have just been content with his 100k from earlier. he’s lucky he broke even. at least he did most of the work by himself(w/ help from some lady and his dad at one point) instead of hiring people. the funny thing was the sink. he SPRAYPAINTED it to look copper. no lie.
Don’t forget the unfinished front edge of his granite tile work. Ever get a granite cut? Ouch!
>FLIP THAT HOUSE
It was “Property Ladder”, not “Flip That House”, just to clarify.
Oh sorry, I confused the two programs .
Anyway, it’s a good thing this kid ,( 25 years old ), couldn’t get the fix up loans he wanted because he would of gone way overboard for the market .I hope he doesn’t try another flip .
Yep. Property Ladder. I was watching it, too, and reported it on a previous thread (yesterday).
Wizard: I agree. This young man was more than clueless. He was trying to “prove” himself, had absolutely no idea which end was up. He was trying to “be a man” and do what *he* thought was the right way to do the reno, instead of listening to a (sort of) seasoned person’s recommendations. It was laughable. And what the hell was that “I’ll spray paint it copper and no one will know the difference” deal? Honestly, way over his head doesn’t begin to summarize his predicament.
What I want to know is where the money came from the furnish the place? Daddy, no doubt.
Buying a fixer (as a clueless 25 yr old)in Los Feliz…..$584,000
Actually fixing it up(sort of)………….$40,000
Having dear ole Dad bail you out……. Priceless
BayQT~
LOL BayQt. I think the flipper had another 40K in mortgage costs also by the time he closed . He use the money from the prior flip to put a down payment on the fixer-upper ,but that left him without any money .
They said at the end of the program that he broke even after paying his parents back . He was lucky that he didn’t lose his shirt and I hate the mortgage broker that gave him the loan . He still wants to do more flips .
I saw this, it was actually Property Ladder. I missed the beginning, I didn’t know that he made money on a previous flip. Now I’m puzzled, he had no money left from the $100K he made before? What a moron. He even took a vacation a couple of weeks before his open house, which ended up consting another mortgage payment.
Doug Duncan is in my book the only honest & market savvy person in the RE industrial complex.
Well I’d like to know who he has been warning? I haven’t seen much in the press until recently. Why the big secret or is he just clamoring on board the “I told you so” bandwagon? The fact he sold his house doesn’t mean he was adamant about getting the message out.
The mainstream press hasn’t been getting the message out, but folks like Ben have been doing the data mining for us since early last year. (Most folks don’t bother reading stuff from The Economist or the big investment outfits like MSDW’s Stephen Roach). Doug Duncan didn’t think there was a national housing bubble last August, but he did express concern about an upturn in delinquencies from ARMs. http://www.jsonline.com/story/index.aspx?id=350470
He says in a report from June 2006 that the strong labor market and a growing economy helped offset recent trouble in the housing market.
From the article:
http://www.mortgagebankers.org/NewsandMedia/PressCenter/42843.htm
“Residential Mortgage Foreclosures and Delinquencies Decrease Since Last Quarter” — “”Going forward we expect these same factors will continue to be important, including the fact that the Federal Reserve might need to raise rates further to keep inflationary pressures contained. In any event, additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead,” said Duncan. ”
Kind of reminds me of that interesting interview discussed here with Kenneth Heebner of the CGM Realty Fund. He predicts a 50% price decrease in “hot markets in California, Arizona, Florida and up the East Coast”. But he doesn’t think it will cause an economic downturn in the whole country. And he might well be right. My family and friends here in the D.C. area, for example, have owned their homes forever and have good jobs. Their goal is to pay off their remaining mortgage (and some are very close to succeeding) and they aren’t counting on the current value of their house for retirement. A housing downturn by itself won’t make them homeless or penniless.
(Of course, the jury’s still out on the total U.S. Economic impact of this bubble).
“Bill Roe agreed that investor demand has dropped sharply. ‘The difference between today and last year is that a lot of the investors are gone,’ Roe said. ‘The opportunity to make a fast buck isn’t there anymore so they’ve left the market. But that isn’t necessarily a bad thing. They were creating an unreal situation.’”
Investors have indeed left the demand pool, except for the ones (like my hairdresser) who are intoxicated by the siren song of 24/7 cable-TV “investing seminar” shows whose sole purpose is to lure in the last of the greater fools.
But the massive collective weight of investors remains to be felt on the supply side. We need to wait for Douglas Duncan’s nonverbal prediction of falling prices to reach the status of common knowledge. This is the point when the investors who are currently eating negative cash flow and holding out hope for a quick return to double-digit housing price inflation will ultimately find themselves forced to capitulate.
“…cable-TV…”
Mr. Stucco, this stuff has hit the main networks already. I just saw a 30 minute investor seminar advert program running simultaneously on KUSI San Diego9 and ABC10!!! Though, for the life of me, I can’t seem to remember on what station the two midgets selling RE seminars were playing.
once 70% of J6P’s think RE scks then the downside is over-same as any market
Depending on the bleed rate, it may take a while for some of them to capitulate…the mindset being “if I just hold out another year, prices are bound to come back up”. There is probably a psychological barrier after which they will capitulate, but I don’t know if it’s at 6 months, 1 year, 2 years, or ??? Greed is a very powerful force, and fear needs time to build up (especially after such a large run-up in prices).
except for the ones (like my hairdresser)
Funny Stucco;….I got my hair cut yesterday….My hairdresser said she has bought a house in Colorado because a friend of her’s has bought 5 houses there and has made 50K in 3 months….I read this crappola here on the blog but when you here it first hand it takes on new meaning….There is going to be a awful price that will be paid for this mindless speculation…..
“I read this crappola here on the blog”
If you and I have both literally experienced this first hand (and in my case, second hand as well), why do you refer to it as “crappola”?
why do you refer to it as “crappola”?
Misquote Stucco;….I guess what I was trying to express was by reading these stories about these idiots buying houses because its going to make them easy money I just find it hard to believe…Hence; “crappola”…I now find “First Hand” that the hairdresser is in the game…Who’s next…The Hot Dog Vendor?
Not the hot dog vendor, the shoeshine boy:
Joseph Kennedy, the SEC’s first chairman and father of President John F. Kennedy, reputedly told colleagues that he sold most of his stock prior to the 1929 Crash after his shoe-shine boy started giving him stock tips. He reasoned that if his shoe-shine boy knew something he didn’t, something had gone seriously awry with the markets.
Read more from a SEC transcript: http://www.sec.gov/news/speech/spch120105et.htm
If you believe that old story, I’ve got a bridge to sell you!
I’ve yet to hear that it wasn’t based in fact no matter how embellished over the the years. Give it credibility. The essesnce has remained unchanged for 3/4ths of a century, and he was the first SEC Chair.
“‘We’ve been warning people that this is coming,’ said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington. He said more than half the loans on the books today are less than three years old, and the peak delinquency period for loans is when they are three to five years old.”
The deluge will soon start.
Simmssays…Best Toys from Your Childhood
http://www.americaninventorspot.com/favorite_retro_toys
WCI Communities, a Bonita Springs developer building hundreds of condominiums in Palm Coast’s Hammock Dunes area, told shareholders last month that orders for its condos up and down the East Coast have plunged 84 percent from last year’s level.”
84 percent?! Tha’ts a hard hard crash.
Simmssays…Most Amazing Propane Tank
http://www.americaninventorspot.com/amazing_propane_tank
I think that they consider anything up to 100% a “soft landing” and anything over 100% would be a hard landing. It’s all about the new math.
Down 50% from up 100%, is a zero sum gain. Flat is considered a soft landing.
mid may was 799,000
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
Listings are going up again.
6/20/06 was 850,317
6/22/06 was 855,892
6/24/06 was 860,647
6/29/06 was 866,037
7/01/06 was 858,675
7/09/06 today 870,854
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
1-month annualized rate of national ziprealty inventory increase:
[(870,854/836,471)^12-1] X 100% = 62%
I think the dip was due to periodic de-listings which also seems to happen in my local area.
Duncan would have everyone believe he is one of us bears but he talks out both sides of his face just like a true bought and paid for economist. These statements of his are only two weeks old:
The economy grew at a brisk 5.3 percent pace in the first quarter of 2006, and labor markets were quite strong as well, with an average of 176,000 jobs added per month. Within this context, the housing market was normalizing with a declining pace of new and existing home sales, and slowing rates of home price appreciation,” said Doug Duncan, MBA’s chief economist and…
In any event, additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead,” said Duncan.
http://www.mortgagebankers.org/NewsandMedia/PressCenter/42843.htm
Yeah, he’s a real bear. Those are some real dire warnings there (not). I hope they flush all the economists down the toilet with the realtors and mortgage brokers when this is finally over. I get so tired of the b.s. I can’t stand it. Oh well, have a nice day!
Mort:
I disagree, he is describing the conditions to be expected for the next 90 days. That is what all RE industrial complex employees do.
He isn’t discussing the end game like we are here. Even the bearish economists don’t talk about the end game (Shiller, Thornberg, etc.)
90 days forward looking advice offers no assistance to buyers who are contemplating a 10-30 year large forward looking purchase.
However, he puclicly sold his house and his given reason was to take money off of the table because valuations had gotten too rich.
He trots out all the same tired cliches that we hear everywhere else from the RE crowd. The market is normalizing. Rates of appreciation are slowing. If a pending crash is normalizing and slowing rates of appreciation means you can’t sell you house even for a loss then I guess he really tells it like it is.
Oh yeah, and jobs are strong. Sure buddy, whatever. Keep quoting the lying government’s numbers if it makes you and the sheeple feel better.
I agree Mort, There is no excuse to have this bullshit continue. If he thinks a crash is going to happen on day 91 but is only paid to predict the next 90, I don’t think it is acceptable to not mention it. This whole idea of economists now coming out of the woodwork claiming they sounded the warning is offensive to me because I have spent a couple of years reading for information to confirm my fears and very rarely read ANYTHING derogatory about the housing market until very recently. Screw this guy and all the other soon to be geniuses.
I once thought, we are the masters of our destiny. And since the value of everything is just a collective mindset, placed on things like; artwork, gold, or real estate, we can just make up any numbers we want to justify the price. I was just being silly. But, this is what is actually happening.
“and labor markets were quite strong as well, with an average of 176,000 jobs added per month.”
If this statement was made just two weeks ago, Mr. Duncan isn’t being entirely honest.
April - 126,000 (revised)
May - 92,000 (revised)
June - 121,000
That’s an average of 113,000/mo. Some observers might say that, if this trend continues, the economy could tip into recession.
If the government numbers ever indicate a recession you can be sure that the country is already in the grips of a full-blown grab your ankles economic depression.
“Bill Roe agreed that investor demand has dropped sharply. ‘The difference between today and last year is that a lot of the investors are gone,’ Roe said. ‘The opportunity to make a fast buck isn’t there anymore so they’ve left the market. But that isn’t necessarily a bad thing. They were creating an unreal situation.’”
You might say that ‘investor demand has dropped sharply’… HousingTracker data for Orlando metro has just accumulated data for the first 2 quarters of this year (its first year tracking Orlando). Available inventory is up 69.3% over a 6 month period… well-planned slowdown and I’m certain the FAR will explain that its just what was needed. We probably didn’t have ENOUGH houses for sale in January when there was only 13,000 available, but now that there are 23,000 properties on the market, we will soon be ‘normalizing’ nicely. It looks like things are tracking right along in preparation for the much-touted ’soft-landing’. You know, like a souffle… when it falls out of your oven mitt and hits the floor?
I’m astounded by the number of homes advertised (manufactured in both ‘05 and ‘06) that are listed as “Brand New!” or “Never lived in!”. Starting to see some “Recently Reduced!” banners on some of the ads, seem to be primarily on existing homes as opposed to new construction. Sunday paper (Sentinel) has the usual 5-pound RE sections (half the newspaper) with standard Lennar/US Homes/KB upgrades/mortgage incentives. Nothing remarkable aside from the inventory ‘bloom’.
“Bill Roe agreed that investor demand has dropped sharply. ‘The difference between today and last year is that a lot of the investors are gone,’ Roe said.”
No, they’re not gone, they’re sellors!
They have moved to other states too like texas, utah new mexico , hell anywhere where homes are still cheap.
When a flipper goes from 40% of the demand to 40% of the supply, he/she becomes a flopper.
J6P: This is sooo confusing…so prices are up, then down? Well, better buy now ASAP now that prices are down.
“According to the Florida Association of Realtors, prices stayed strong in the first quarter, with condos typically selling for about $20,000 more than the levels of a year earlier. But in April and May, the pattern reversed, with median prices falling about $40,000 below the monthly results of a year ago.”
fastest move since 20’s for FLA, even in the 90’s they were creaping up
“Diedrick did a study in Englewood and found the average new home being built in that area sells for about $400,000.”
“That’s a big change from the way it’s been in years past,” he said “Once it hits that type of number, it’s not going to retreat. It might fall back a bit, but not much.”
Why won’t it retreat? You hear this type of comment a lot, from all types of people involved in RE:
RE Person: “Don’t expect prices to drop much”
Me: “Why not?”
RE Person: “Because once prices are this high, only rich people can afford houses, and rich people don’t run out of money”
Me: “Whhaaaaaaaaaaatt???”
“He said more than half the loans on the books today are less than three years old”
Does anyone else find this extremely frightening? Wasn’t there a statistic posted months ago that a high percentage of loans made in the last 3 years were ARMS, I/O, and Option-ARMs? Added to this tidbit, it seems like we could see a lot more people with loan resets than I had even imagined.
WOW.
Heck — it is difficult not to feel a bit smug when, on average, all the things we have been predicting on Ben’s blog, have been happening right on cue, as if it is scripted. At any other time in my life, I’d have been losing sleep after cashing out and waiting for a price drop. But I sleep pretty well, knowing it’s all coming to pass. Should be pretty soon that the re-set problem gets the attention of the MSM, for example. Politicians, of course, are eager for the bad news to wait until after the elections because even the ones who are running against incumbents ought to know we’re in for a world of hurt and elected officials will be as popular as warts.
My fixed rate 4.99% 30 yr conventional mortgage 20% LTV is less than 3 years along. Scared? I’m buying a $10k 8 month CD at 5.65% tomorrow morning at http://www.premier.org Are you scared of my fresh mortgage entering the prime default years or the millions of others just like it? Don’t read too much into the 20% of all mortgages that are the problem. They’ll decimate the mortgage industry and probably tip us into a recession but they still only look like 1 months GDP, a flesh wound but not fatal.
>Are you scared of my fresh mortgage
Now you are being silly. I wasn’t talking world armagedon; I was saying that the likelyhood of a recession or a lending industry implosion was much greater than even I had thought.
>They’ll decimate the mortgage industry and probably tip
>us into a recession
My point exactly.
Scared if you loose your job or don’t get any more overtime, and can’t pay your mortgage? I think a lot of people should be scared.
Things are starting to look bad in the Inland Empire (IE) in So. CAl. for the developers/builders. To attract the first time home buyers they are offering huge concessions instead of lowering prices. I just wondering how all this “free stuf” is handled when filing taxes…do you get a 1099 at the end of the year? Anyway, here’s the article http://www.pe.com/business/local/stories/PE_Biz_D_incentives06.17306db.html
What I can’t see is why buyers ,who are by the way in the drivers seat, do not push for lower prices instead of consessions. It means less financing costs and lower taxes. Many potential buyers do not realize just how big the tax bite is going to be in Calif.
Yep ,just write up a offer at the lower price, instead of the concessions and send it to the builder/developer . But, don’t buy for a number of years because good deals will be a dime a dozen down the road .
>Many potential buyers do not realize just how big the tax bite is going to be in Calif.
“Many potential buyers do not realize just how big the tax bite is going to be in Calif.”
Until they do a equalization of all properties in CA to spread the tax burden evenly it will never be a good time to buy in CA again. Would I pay more in taxes myself ? Probably, but thanks to Prop 13 I’m paying less taxes on a condo currently market valued at over $500K than I was in New York State for a house valued at $220K. I’d prefer to pay a bit more and have roads & highways that aren’t falling apart as well as a fully funded Highway Patrol & other emergency services.
Huh? 1% plus a few add ons that could total another 0.22% in some cases but typically 1.1% is close enough and you also know exactly the most your taxes can ever be going forward. Now, Mello-Roos, there’s another FB nightmare.